IMF’s Kammer Warns: Tariff Headwinds May Eclipse Eurozone Growth Despite German Stimulus

Eurozone faces growth turbulence as IMF director Alfred Kammer flags tariff drags outweighing Germany’s fiscal boost. Markets brace for impact.

Key Takeaways:

- Protectionist policies create friction in EU’s recovery engine

- Germany’s stimulus package fails to offset broader trade constraints

- Currency markets show skittishness amid growth forecast revisions

Closing Thought: When central bankers and finance ministers play tug-of-war with economic levers, someone’s always left holding the short end of the yield curve.

Kammer says increased spending in Germany will not offset U.S. tariff drag

According to Kammer, Germany’s recent infrastructure spending bill will only offset the negative impact of tariffs “slightly,” which will boost growth in the euro area over the next two years. 

However, the deputy director of the IMF’s European department, Oya Celasun, said on Friday that Germany’s fiscal expansion will boost its economy starting in 2026 to offset the increased drag from U.S. tariffs after years of weak growth.

Celasun told a panel during the IMF and World Bank spring meetings in Washington that she did not expect Germany’s increased spending to happen quickly. She, however, pointed out that it would be a dominant factor in offsetting the ongoing drag from trade tensions as “we move into 2026 and 2027.”

Kammer told CNBC’s Carolin Roth in an interview at the IMF-World Bank Spring Meetings last week that tariffs and trade tensions weighed on the euro area’s growth outlook rather than the positive effects on the fiscal side.

The IMF cut its Eurozone growth forecasts for each of the next two years by 0.2 percentage points, to 0.8% in 2025 and 1.2% in 2026.

“What we see is we have a meaningful downgrade for Europe’s advanced economies…and for the emerging euro area countries double as much over this two-year period.”

–Alfred Kammer, Director of the European Department at the International Monetary Fund (IMF)

Kammer also suggested that the ECB should cut interest rates by a quarter percentage point only once more this year, despite growth risks. The ECB has so far reduced rates seven times in quarter-percentage-point increments, starting in June 2024. Its most recent rate cut in April took the deposit facility down to 2.25%. 

IMF praises German multi-billion fiscal stimulus package

The IMF’s Managing Director Kristalina Georgieva said on April 24 that the global economy was entering a “new era,” praising what she described as “impossible” policy shifts in Germany, Britain, and Argentina. 

The IMF particularly praised the special fund for infrastructure, saying that the package was likely to boost growth in the NEAR term and also have a long-term impact. Germany’s parliament approved in March plans for a massive spending surge, throwing off decades of fiscal conservatism in hopes of reviving economic growth and scaling up military spending. The stimulus package will allow investments in defense, transport, energy grids, schools, sporting facilities, and climate protection. 

The IMF urged Germany to embark on reforms, stressing that the most important thing was to cut red tape so that the special fund could actually achieve its full impact. The fund also asserted that Germany should help more women to work full-time.

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